On September 6, 2023, the Georgia Supreme Court reaffirmed that Georgia courts must first determine whether a restrictive covenant is enforceable under Georgia law before applying a foreign choice-of-law provision.
In Motorsports of Conyers, LLC v. Burbach, the Georgia Supreme Court stated that before a Georgia court can enforce a restrictive covenant in a contract calling for the application of foreign law, the Georgia court must first determine that the restrictive covenant is "reasonable" under the GRCA. The Georgia Supreme Court further explained that where a restrictive covenant is unreasonable under Georgia's Restrictive Covenant Act (GRCA), it is in violation of Georgia's public policy, and, therefore, it cannot be enforced on the basis of the foreign choice-of-law provision.
In Motorsports of Conyers, the trial court had applied a Florida choice-of-law provision to govern the employment contracts at issue without first determining whether the restrictive covenants in the contracts complied with the GRCA. The Georgia Court of Appeals reversed, and in doing so, ruled that applying the GRCA is the first step in analyzing whether the public-policy exception overrides the parties' choice of foreign law. The Georgia Supreme Court affirmed that reversal, finding the trial court did not apply the correct framework in determining the enforceability of the restrictive covenants. In clarifying the framework, the Georgia Supreme Court noted that while the GRCA had afforded a more flexible and permissive approach to the application of foreign law to restrictive covenants in Georgia than had previous decisional law predating the GRCA, Georgia law remains the "touchstone" of any restrictive covenant analysis.
In short, if a Georgia court finds that a restrictive covenant is reasonable under the GRCA, it may then "honor the choice-of-law provision and apply the foreign law to determine whether to enforce it . . . " If, however, a Georgia court finds that a restrictive covenant is unreasonable (in scope, duration, or geographic reach) under the GRCA, the court "may not apply foreign law to enforce it." Instead, Georgia law would govern the contract, and so the court would apply Georgia law, including the GRCA's blue-penciling provision, which could allow the restrictive covenant to be enforced in part.
The GRCA's blue-penciling provision allows Georgia courts some discretion to modify a restrictive covenant to make it reasonable (and enforceable), but, as previously discussed, while courts have discretion to "blue pencil" (narrow/sever) restrictive covenants to bring them into compliance with Georgia law, a court may not add certain provisions, including a geographical limitation to a document lacking that material term. On this particular issue, the court was not convinced that a court simply could chose to decline to blue pencil unreasonable restrictive covenants given the GRCA's language "in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement," but they left any questions about the breadth of a trial court's discretion to decide whether to blue pencil a restrictive covenant for another day.
The Georgia Supreme Court vacated the trial court's decision and remanded the case to the trial court to apply the articulated framework.
Employers should consider revising restrictive covenants applicable to Georgia employees that do not pass muster under Georgia law even where there is a foreign choice-of-law in the restrictive covenant agreement.
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